Elliott Management Corp. met its match in Akzo Nobel NV.
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The Dutch paint giant faced down a protracted, $27.6 billion takeover attempt from U.S. rival PPG Industries Inc., in the process dealing a blow to the U.S. investor's aggressive style of activism.
Elliott had emerged as a key player in trying to end a standoff between two of the world's oldest industrial companies. As one of Akzo's largest investors, Elliott mounted a bold public-relations and legal campaign to try to force the Amsterdam-based company into unwanted sale talks with PPG. Elliott's tactics have established it as one of the most prominent activist investors in the U.S. Most recently the hedge fund spearheaded a campaign that helped unseat the chief executive of aerospace-parts maker Arconic Inc.
But a similar effort came to nothing in the case of Akzo on Thursday after PPG dropped its bid following its failure to initiate friendly talks after a monthslong attempt. PPG is now challenged to find new sources of growth after losing out on making its bet that the Akzo tie-up would strengthen the company's global reach, allow it to cut costs and offer customers a broader portfolio of paints and coatings.
Some analysts supported the move. "They did the right thing" by walking away, according to Robert W. Baird analyst Ghansham Panjabi. "They needed to protect shareholders [from escalating bids for Akzo Nobel] and not get wrapped up in the emotion. This is a consolidating industry. There are plenty of other deals out there."
PPG Chief Executive Michael McGarry said his most recent approach to Akzo came as recently as May 29 but, as in previous cases, the Akzo board "consistently refused to engage and didn't respond to our (latest) call or letter."
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Since the initial offer in March, PPG had proposed a further two, sweetened offers to woo Akzo to the negotiating table. But bolstered by a Dutch corporate structure that provides protection from a shareholder-supported hostile bid, it fended them off. The company also survived a shareholder revolt and legal challenge led by Elliott.
Elliott is widely known for its extensive preparation in launching activist campaigns against target companies. It used Dutch lawyers and industry consultants to help make its case against Akzo. Still, Thursday's setback highlights the challenges U.S. activist investors can face investing in countries that have different corporate governance structures, tax and other rules.
Last month, for example, Elliott shifted part of its strategy in pushing for change at BHP Billiton Ltd. by proposing that the mining giant retain a main stock listing in Australia. Previously, it sought shareholder support for BHP to end its dual listing in Sydney and London in favor of a U.K.-only listing, but that plan met opposition by the Australian government.
Akzo rejected PPG's bids as too low and argued that completion of the tie-up was far from certain owing to the complex and lengthy antitrust review a deal would likely face. The company is betting its stand-alone strategy of boosting dividend payouts and spinning off the company's specialty chemicals business will generate more value than the takeover.
The strategy will "lead to a step change in growth," Chief Executive Ton Büchner said Thursday.
Still, Elliott can claim partial victory from Akzo's plan, as it originally invested in the stock to push Akzo to initiate the chemicals-unit spinoff.
And so far, the investment has paid off. Elliott, which first invested in Akzo stock last year when the stock traded at levels well below the current price of about EUR75.02, remains in the black on its holding. Although the size of Elliott's gain couldn't be determined, Akzo stock traded broadly between EUR50 and EUR60 in 2016 suggesting the paper gains are substantial.
But after PPG disclosed its initial $22 billion bid more than two months ago, the hedge fund, joined by several large shareholders, urged Akzo's management and board to enter into talks with PPG to determine if a sale would generate more value.
Frustrated by Akzo's unwillingness to negotiate, Elliott asked a Dutch court last month to force Akzo to hold a special shareholder meeting seeking the removal of its chairman, Antony Burgmans, to push Akzo into deal talks. But this week the court ruled against that request. Elliott can appeal.
An Elliott representative declined to comment Thursday.
Akzo's controlling foundation also highlighted the challenges both PPG and Elliott faced. PPG, under Dutch law was required by Thursday to launch a hostile takeover bid or abandon the pursuit for at least six months. But the foundation's four directors, including Mr. Burgmans, retain exclusive rights to nominate replacement directors. That meant even if PPG launched a hostile bid and won sufficient shareholder support it could still struggle to take control of Akzo.
Write to Ben Dummett at email@example.com
(END) Dow Jones Newswires
June 01, 2017 13:54 ET (17:54 GMT)